What Is Solar Project ROI in India: Expected Returns, Tariffs, and Project Finance
Energy Infrastructure Finance

What Is Solar Project ROI in India

Direct answer: A financed solar project in India generally produces about 11%–16% equity IRR for utility-scale plants and roughly 14%–20% for commercial and industrial projects. Returns are mainly driven by tariff pricing, debt leverage, and the payment reliability of the electricity buyer.

Why Solar Finance Works In India

Solar projects in India are bankable because revenue is contractual. Developers sign long-term power purchase agreements lasting roughly 20 to 25 years. The contract fixes the electricity price and obligates the buyer to pay for delivered energy.

Because payments are predictable, lenders can model repayment before construction. In practice, financiers are underwriting the payment obligation, not the panels. India’s procurement framework and solar market evolution are described in the International Energy Agency’s India Energy Outlook , which explains how standardized tenders helped the sector scale.

The financial asset is the contracted electricity receivable created by the PPA. The solar plant simply generates it.

Return Profiles By Project Type

Utility-Scale Solar Farms

Approximately 11%–16% equity returns. Lower tariffs reduce upside but can materially improve access to long-tenor debt.

Commercial & Industrial Rooftop Solar

Typically 14%–20% because corporate off-takers pay higher electricity prices than many state utilities and may offer stronger payment behavior.

Senior Debt Providers

Project lenders commonly earn 8%–11% depending on currency hedging, tenor, covenants, and sponsor strength.

Hybrid Or Storage Projects

Can deliver higher returns but attracts tighter technical and financial due diligence, plus performance stress testing.

What Actually Determines ROI

Sunlight matters, but contract and financing structure matter more. Four underwriting factors dominate project profitability:

  • Tariff agreed in the power purchase agreement
  • Debt leverage, interest rate, and tenor
  • Site irradiation and plant performance assumptions
  • Credit quality and payment behavior of the off-taker

For a practical view of how lenders allocate risk between sponsors, lenders, and contractors, see our overview of how financing structures are arranged.

Why Lenders Participate

After commissioning, operating costs are low and predictable, so cash flow conversion is strong. This supports project finance debt service and defined distribution waterfalls. For broader context on renewable project bankability and contract design in emerging markets, the World Bank’s energy and infrastructure publications are a useful starting point.

Most projects fail financing due to weak documentation, missing permits, unclear land rights, or an unenforceable PPA, not because solar technology is risky.

How Projects Obtain Funding

Before committing capital, lenders typically verify:

  • Executed or near-final PPA (or corporate offtake agreement)
  • Grid interconnection approval and evacuation plan
  • Land control and permits
  • Sponsor equity contribution and source of funds

Sponsors seeking funding can submit transactions through our deal submission process for initial review.

Frequently Asked Questions

What is a good ROI for a solar project in India?

For financed projects, utility-scale solar is often modeled around 11%–16% equity IRR, while commercial and industrial solar tends to target 14%–20%. The range depends on tariff, leverage, and off-taker payment behavior.

Is IRR the same as ROI for solar projects?

Not exactly. ROI is a simpler ratio view of profit versus invested capital. IRR incorporates timing of cash flows and is the standard metric lenders and infrastructure investors use for project finance underwriting.

What matters more: sunlight or the PPA?

Both matter, but the PPA usually dominates financeability. A strong tariff and enforceable payment obligation can support higher leverage and better debt tenor, which often drives equity returns more than small differences in irradiation.

What are the biggest risks lenders worry about?

Off-taker payment delays, curtailment or grid evacuation limits, incomplete land and permit documentation, and EPC performance risk. These risks are mitigated through contract controls, covenants, and step-in rights.

Can small solar projects in India get project finance?

Yes, but smaller projects often need aggregation, a strong sponsor, or corporate off-take contracts to justify lender transaction costs. Many lenders prefer scale, repeatability, and standardized documentation.

How does Financely fit in?

We review bankability, help structure financing-ready documentation packages, and support lender engagement on qualified transactions. Start with the deal submission form.

Project Finance Review

If your project has site control, an off-taker, and committed equity, we can review bankability and potential capital sources.